bvps and eps

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accounting lectures. enjoy! :)

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BOOK VALUE & EARNINGS PER SHARE BOOK VALUE PER SHARE refers to the amount that would be due to each share with the assumption that the company would be liquidated. The amount due to shareholders is the same amount reflected as shareholders equity. PROFORMA ENTRY: FOR One Class of Stock Book Value per share = Total Shareholders Equity Number of shares Outstanding

***For purposes of book value computation, treasury shares shall be treated retired. Example: The shareholders equity section of the balance sheet on December 31, 2006 showed the following: Capital stock, P100 par Subscribed capital stock Additional Paid in Capital Retained Earnings Treasury stock 2,000 shares Solution: Issued Subscribed Total Treasury shares at par Outstanding amt/shares Amount P2,000,000 500,000 P2,500,000 (200,000) P2,300,000 ======== Shares 20,000 5,000 25,000 2,000 23,000 ====== P2,000,000 500,000 600,000 800,000 (100,000)

at cost

Outstanding amount Additional Paid In Capital Retained Earnings Total Shareholders Equity

P2,300,000 600,000 800,000 P 3,700,000 =========

Book Value per share = Total Shareholders Equity Number of shares Outstanding = = P3,700,000 23,000 shares P 160.87 ====== BASIC EARNINGS PER SHARE Earnings per share(EPS) is the amount attributable to every common share outstanding during the period. EPS is not necessary for preferred stock because it has definite rate of return. EPS is required for firms whose common shares are publicly traded. Non-public enterprises are not required to present EPS. USES of EPS Determinant of the market value of common stock. Measures the performance of management in conducting it affairs. Basis of dividend policies of the company. Basic computation: Basic EPS = Net Income Common Stock Outstanding

Note: Net income is equal to the amount after deducting preferred dividends. If preferred stock is cumulative, the dividend for the current year only is deducted from the net income, whether such dividend is declared or not. If preferred stock is non-cumulative, the current dividend is deducted from net income if there is declaration. If significant change in common stock arises, the weighted average number of common stock outstanding during the year should be used as denominator.

Example 1: 5% Preferred stock, P100 par, cumulative Common stock, P50 par Net Income for the year Solution: Net Income for the year Less: Preferred Dividends for the current yr. (2,000,000 x 5%) Net Income to common stock P 750,000 P2,000,000 500,000 750,000

100,000 P 650,000 ======== If preferred stock is cumulative, the dividend for the current year only is deducted from the net income, whether such dividend is declared or not. P650,000 10,000 P 65.00 ======

Basic EPS = =

Example 2: 5% Preferred stock, P100 par, non-cumulative Common stock, P50 par Net Income for the year No dividend declaration for the year Solution: Basic EPS = = P750,000 10,000 P 75.00 ====== P2,000,000 500,000 750,000

Note: If there is dividend declaration during the year in Example 2, the answer would be the same as Example 1.